Transaction’s digitalization and Digital revolution
Certainly, blockchain has made revolution in business relations. Below are some facts as a prove of it:
All of these factors will lead to a revolution in business relations. The ability to coordinate within networks of interacting firms will result in a sharp reduction of transaction costs. But primarily all this will effect regulations in assessing shareholder’s value of entrepreneurs’ assets.
Shareholder value of production assets, assets’ networks, transactions
The most interesting effect is a significant reduction of uncertainty in future cash flows due to harmonization of information, transactions and activities of firms.
Let’s imagine a firm that produces intermediate goods to several customers. Its cash flow depends on customer firm’s success. If customer’s firms have their own customers and they have their risks, then innumerable factors influence success of our firm. At present time, firm that produces intermediate products doesn’t know what is exactly happening in firm’s network that provide it with orders and money. As a result, to predict its cash flow is extremely difficult.
And then imagine our firm being informed about all network’s activities, but at the same time with this information it concludes smart contracts. This will significantly improve firm’s efficiency and reduce its risks. Moreover, such an approach will help to estimate aggregate shareholder value of the entire firms’ network, and therefore agree on specific cash flow transactions, taking into account the real impact of these transactions on the firm's value. And what does this mean? Just imagine the situation: you are starting a long-term work under smart contract. It immediately allows you to assess how the achieved results will affect value of your asset and value's likelihood increases in view of risks. In addition you will be able to see how same function, but in an another planned networks affects your value and also you will be able to choose both the conditions and the most profitable networks for you.
Such shareholder value’s creation would dramatically reduce investment errors’ cost, and therefore appropriately redistribute investment capital.
Article by Andrey Miroshnichenko, Translated by Elena Krasovskaya.